Sunday, September 20, 2015

In the immediate aftermath of the
announcement by the US Federal Reserve that it was not raising interest rates
at the end of last week’s FOMC meeting, on the 17th, there was something
of a knee-jerk reaction in Forex markets, and the EURUSD pair was bid up – the dollar
weakened.

The following day, however, there was
a definite change of mind on the part of market participants. It would appear
that mature reflection caused the big players to decide that even if US rates
were kept on hold on this occasion, the factors that will give rise to a
tightening in the US are not only still in place, but are becoming more
pronounced. In other words, it is only a matter of time before the Fed will
bite the bullet.

This was enough to bring the rate for
the Single Currency down to below the 200 Day Exponential Moving Average (EMA) once
more. This level also coincides with the nice round figure of 1.13, and there
is a real feel to this being a difficult resistance level to overcome for the
pair.

Talk
of increased ECB QE

At the same time, on the last day of
trading last week, there was increased chatter on the newswires about the prospects
for an acceleration of the Quantitative Easing (QE) that the European Central
Bank (ECB) has embarked on. This is in response to the continued deterioration
in the inflation outlook for the Eurozone. There is now every indication that
consumer price growth in the EZ will dip into negative territory before it
starts to rise again. This qualifies as deflation, which is a state of affairs
that the central bank is greatly concerned about. Increased QE in the Eurozone would
dovetail nicely with the expected hardening of US monetary policy to drive the
EURUSD pair down, perhaps even to approach the much vaunted parity with the
dollar.